Premier Pandeli Majko's new coalition government is slowly consolidating its hold over the administration, though the overall power of the government remains weak after the country was rocked in September by the worst political violence since the uprising of March 1997. Within the cabinet the deputy premier Ilir Meta has emerged as the key power in most decision-making and policy implementation. The new government consists of representatives of the Socialist Party (PS), the Social Democratic Party (SDP), Union of Human Rights Party (PBDNj - this party represents the ethnic Greek minority), Democratic Alliance (AD), and the small Agrarian Party (AP). The largest opposition grouping the Democratic Party (DP), led by former president Sali Berisha, does not recognise the legitimacy of the Socialist-led government, is continuing its boycott of parliament and staging street rallies to push for early elections.

The overall security situation remains very poor with most roads prone to armed attack. The recent formation of new armed roads police units to clear out highway robbers is unlikely to have much effect in the near future. Organised crime significantly increased during 1998 - smuggling, and the trafficking of drugs, weapons, illegal immigrants and women is expanding in Albania - an estimated 30,000 Albanian women are currently working as sex workers in Europe . Drugs, particularly home-grown cannabis, and to a lesser extent heroin in transit, are becoming an ever increasing problem, with an average of 15 murders per month directly connected with the drugs trade. It is now apparent that a drug culture has penetrated Albanian society. The risk of a “Colombia scenario” with the country becoming a key bridge in the trafficking of drugs, is therefore very real.

As always in Albania, settling accounts with the past plays a large part in the reality of the present causing the country to remain entrenched in conflictual politics. A new political and national identity is still in the process of formation, whilst the country remains beset by its geographical position in a Balkan peninsular rent by the uncertainties of war and economic collapse. Former President Sali Berisha is becoming increasingly unstable and contemptuous of both internal public and international opinion. Almost daily he issues personal attacks on various members of the governing Socialist Party and also upon foreign diplomats, thereby encouraging the already noticeable trend towards xenophobia that is evident throughout Albania. The collapse of the many pyramid investment schemes in early 1997, and the anarchic social disorder that accompanied it, led to the downfall of the Berisha regime and the subsequent victory of Fatos Nano's Socialist-led coalition government in June 1997. Tens of thousands of Albanians who lost their entire life savings as a result of the pyramid collapse were traumatised by the events of the spring of 1997, the scars of which will remain embedded in the nation's psychic for many years to come. Many Albanians are now suspicious of the motives of foreign involvement in Albanian affairs. According to the Albanian National Intelligence Service, it is widely believed that the pyramids were set up by foreign intelligence agencies in co-operation with Albanian Communist extremists in order to overthrow the democratic government .

A number of Western countries have openly criticised Berisha for hindering the country's democratisation process. The United States expressed concern that the DP led by Berisha, once a strong US ally, was not playing a constructive role. Following the inauguration of Premier Majko's new government, a US State Department statement urged "the Democratic Party and those others continuing to pursue these destructive practices to renounce once and for all calls for violence and instability."

The new constitution, which was narrowly passed by a referendum on 22 November, produced a weak victory for the government, and consequently there are some tentative grounds for optimism regarding Albania's internal politics. Given the enormous socio-economic problems facing the country, however, the passing of the constitution is unlikely to increase public confidence in Albania's immediate future.

Albania's internal problems are compounded by the threat of Islamic terrorist operations being activated from Albanian territory and the Kosovo crisis, which shows no sign of abating and which threatens to draw Albania inextricably into some form of military confrontation with Yugoslavia. The north-east of the country is now largely under the effective control of the Kosovo Liberation Army (KLA), and it is from here that an increasing number of border skirmishes are taking place between Yugoslav troops and KLA guerrillas.